Enron Insurance Presentation January 11, 2001

1. Enron Insurance Presentation January 11, 2001

2. Overview • Global Risk Markets • Corporate Risk Management • Risk Financing Alternatives • Corporate Insurance ProgramSummary of Major Property & Liability Policies • Other Insurance Products • General Discussion Topics • Contracts & Insurance • Environmental Risk & Insurance

3. GRM Organization Chart Global Risk Markets Jere Overdyke Underwriting Committee George Carrick Chairman Portfolio Management Cliff Shedd Product Specialists Risk Integration George Carrick Technical Support Insurance James L. Bouillion Upstream Research Enterprise-wide Risk Management Execution New Product Development Power Legal Sovereign Tax Claims Structuring and Risk Processing Portfolio Other Accounting

4. Vision Risk Market Evolution Current Paradigm Global Risk Markets Risks Markets Risks Markets Price Risk Derivatives Price Risk Derivatives • Decompose • Transform • Bundle • Intermediate Event Risk Insurance Event Risk Insurance Performance Risk Capital Performance Risk Capital Efficient risk intermediation artificially constrained Value created through efficientrisk clearing

5. Corporate Risk Management Organization Chart J. Davis Director C. Shedd Vice President J. Bouillion Sr. Director D. Dees Sr. Administrative Assistant P. Clayton Manager D. Marshall Manager J. Studdert Director, Claims L. Ellis Sr. Administrative Assistant D. Vincent Manager E. Kendall Manager P. Parrish Manager Vacant Manager P. Parrish Manager Denisse Guzman Clerk M. Grisaffi Staff R. Cole Manager, Claims T. Yamada Manager K. Mathis Manager, Claims Linda Vargo Sr. Administrative Assistant 12/20/00

6. Corporate Risk Management Responsibilities • Insurance Company Relationship Management • Insurance Program Design and Structuring for Enron Corp., its affiliates and subsidiaries: • Identification and quantification of loss exposures • Advisor on all insurance matters • Risk transfer or retention based on analysis • Captive insurance company operation • Arranging Worldwide Project insurance placements • Identification of opportunities for cost reductions or expansions of coverage • Responsible for Property & Casualty protection • Property - Major Risks, Physical Damage, Business Interruption • Political Risk - Expropriation, Currency Controls, Political Violence, Contract Frustration • Liability - Contractual due diligence • Mergers and Acquisitions due diligence • Crisis Support (Gas Pipeline Group and Foreign Regions) • Claims Management

7. Risk Financing Alternatives • Retentions (on balance sheet):* Captive Insurance Company - Allocations are made to the operating company’s to pre-fund actuarially estimated losses. The loss reserves held by the captive are loaned back to Enron Corp. and are invested by Corporate Treasury. * Unfunded: Operating company’s pay from current earnings. • Transfer (off balance sheet):* Insurance Company’s - Allocations or direct billings are made to the operating company’s for the premiums to transfer catastrophic loss exposures to third parties.

8. Lines of Coverage/Predominant Form of Risk Financing • Property - Providing protection for physical assets* Property - Transfer * OEE/COW - Transfer* Fiduciary - Transfer* Crime - Transfer • Casualty - Providing liability protection from third party claims* Workers Compensation - Funded in captive* General Liability - Funded in captive* Automobile Liability - Funded in captive* Aviation - Transfer* Directors & Officers - Transfer* Excess Liability - Transfer

9. Corporate Insurance Program

10. SUMMARY OF MAJOR PROPERTY POLICIES $600 MM $150 MM Various Sub-Limits for Business Interruption $85 MM Deductible(1) Onshore $1 MM Offshore $2 MM $50 MM Deductible $500,000 Deductible $200,000 Deductible $500,000 PROPERTY O.E.E./C.O.W. (Operator Extra Expense/ Control of Well) FIDUCIARY CRIME (1)Deductible scaled to interest. Offshore minimum: $1 MM. CONFIDENTIAL: NOT FOR RELEASE OUTSIDE OF ENRON

11. SUMMARY OF MAJOR LIABILITY POLICIES Excess Excess $100 MM Aviation Liability Hull Limits Per Scheduled Values $2 MM Foreign Liability EL AL GL $850 MM Excess Liability $350 MM Directors & Officers (2) Coverage / Limit of Liability Unlimited Workers’ Comp. (1) $2 MM Employers’ Liability (1) $2 MM General Liability (1) $2 MM Auto Liability (1) WORKER’S COMP. FOREIGN LIABILITY AVIATION DIRECTORS & OFFICERS LIABILITY LIABILITY CONFIDENTIAL: NOT FOR RELEASE OUTSIDE OF ENRON

12. MARINE INSURANCE PROGRAM Excess $65MM Primary $400 MM $50MM $40MM Deductible various (1) Deductible $100,000 Deductible $100,000 Cargo Owners Pollution Liability Charter’s Legal Liability Marine Cargo (1) Scheduled on Policy CONFIDENTIAL: NOT FOR RELEASE OUTSIDE OF ENRON

13. Other Insurance Products

14. Intellectual Property E-Commerce Professional E & O Systems Performance Unauthorized Trading Tax Opinion Force Majeure Environmental Impairment Liability Available Insurance Products

15. General Discussion TopicsContracts & InsuranceEnvironmental Risk & Insurance

16. Contracts and Insurance

17. First Party Damage to owned/leased property Resulting Revenue Loss Employee Injury Third Party Damage to property of others Injury to non-employee persons Insurable Risks

18. Insurance Concepts • Named Insureds: entities to whom the policy is issued; • Automatic Insureds: individuals or entities who are automatically insured under the policy by virtue of their relationship to the named insured; • Additional Insureds: individuals or entities who require insured status in conjunction with a business relationship.

19. Insurance Concepts • Subrogation: Right of insurer, following payment of a loss to its insured, to assume the rights of the insured to pursue recovery of the payment from a party alleged to have caused or contributed to the loss. • Waiver of Subrogation: Insurer’s agreement to waive its rights of subrogation prior to a loss.

20. Insurance ConceptsFirst Party Property Risks • Insurable Interest: exists when a party has a capital stake in the covered property (owners, lenders) or has contractually assumed the financial risk of loss to the covered property (contractors, lessees). • Loss Payee: a party entitled to insurance proceeds in connection with the covered property in which it has an insurable interest.

21. Insurance ConceptsFirst Party Property Risks • Additional Insured: Party with an insurable interest in a portion of the covered property; • ‘…as their interests may appear’: restricts the recovery rights of the additional insured to only the proceeds connected to covered property in which the additional insured has an insurable interest.

22. Practical Example

23. ExampleFirst Party Risk(A Power Purchase Agreement) Force Majeure Section: “Seller shall not be responsible for any delay or failure in its performance under this PPA due solely to conditions…of Force Majeure…impacting... the Facility Conditions of Force Majeure shall include…Acts of God…machinerybreakdown…”

24. ExampleFirst Party Risk Insurance Section: “Seller shall maintain all risk property insurance covering …damage to the Facility and business interruption insurance...sufficient to cover...Purchaser’s continuing or increased expenses for...12 months. Purchaser shall be named as a additional insured and loss payee...”

25. Practical Considerations First Party Risks Insurable interest establishes beneficiary status under the policy; Contingent risk best left with the owner of that risk; Retained risk (e.g. deductibles) rests with the party at risk of loss; Risk transfers = Cost.

26. Insurance ConceptsThird Party Risks • Insurance does not provide full indemnity; • Insurance is one vehicle to fund those portions of indemnitor’s obligation subject to policy terms and conditions, limits, and exclusions; • Insurance and indemnity obligations may be construed independently.

27. Insurance ConceptsThird Party Risks Contractual Liability • Provision in a liability policy that affords coverage for the insured’s costs attributable to the liability of others for third party pd/bi claims assumed under contract. • Indemnitee has no direct rights under the indemnitor’s insurance contract; Insurer’s obligation limited to funding the indemnitor’s costs attributable to the assumed liability. • Invalidation of indemnity relieves the insurer from funding this risk.

28. Insurance ConceptsThird Party Risks Additional Insured • Indemnitee has direct access to indemnitor’s liability policy; • Insurer has duty to defend the indemnitee as an additional insured subject to the terms and conditions of the policy;

29. Insurance ConceptsThird Party Risks Additional Insured • Insurance contract may provide the indemnitee with broader protection than the indemnitor intended in the commercial contract. • Invalidation of the indemnity clause in the commercial contract may not impair the indemnitee’s rights under the insurance contract.

30. Practical Examples

31. Example Third Party Risk(An EPC Agreement) Indemnity Section “Contractor…indemnifies …Owner…from all [third party] claims…unless arising from the negligence of Owner…”

32. Example Third Party Risk(An EPC Agreement) Insurance Section “Contractor shall maintain [third party liability] insurance… insuring the contractual liability assumed hereunder, naming Owner as additional insured with respect to the work… such insurance is primary to any liability insurance [of] Owner.”

33. Example Third Party Risk(An O&M Agreement) Indemnity Section: “Operator shall indemnify Owner…from all [third party] claims…to the extent…caused by... negligent act of Operator, unless solely caused by... negligence of Owner...”

34. Example Third Party Risk(An O&M Agreement) Insurance Section: “In the event Operator shall be liable for loss under [indemnity] section, the proceeds of insurance policies referred to in [Owner’s insurance] shall first apply to the loss… All [Owner insurance] policies shall include Operator as additional insured...”

35. Practical Considerations Third party risks in an adverse contracting position: • Offer contractual liability coverage to fund indemnity obligation; • Resist additional insured; consider if commercially necessary; • Consider project specific coverage if counterparty won’t agree to limitation or forces onerous indemnity language; • Risk transfers = Cost

36. Practical Considerations Third party risks in a favorable contracting position: • Consider full additional insured status; • Consider cost/benefit of additional insured vs. contractual liability option. • Risk transfers = Cost

37. Environmental Riskand Insurance

38. History Pre 1970s • No specific delineation of environmental risk in CGL policies; • Coverage triggered by bodily injury / property damage; • Policies written to apply on an ‘occurrence’ basis.

39. History Post 1970s • ‘Absolute’ pollution exclusion; • ‘Sudden and Accidental’ coverage triggers; • Claims made CGL policy forms; • Customized environmental insurance products (PLL and EIL).

40. OCCURRENCE VS. CLAIMS MADE POLICY FORMS OCCURRENCE CLAIMS MADE 1990 1991 1992 1993 1994 1995 1996 2000 DATE OF ACCIDENT CLAIM MADE AGAINST INSURED CLAIMS MADE RETROACTIVE DATE • OCCURRENCE FORM - APPLICABLE POLICY IS ONE IN EFFECT WHEN ACCIDENT OCCURRED • CLAIMS MADE FORM - APPLICABLE POLICY IS ONE IN EFFECT WHEN CLAIM IS MADE

41. Customized ProductsUnderwriting Process • Pre-quantification of risks and time limitations on risk assumption by insurer. • Environmental due diligence required phase I report (minimum); • Copies of relevant contracts/agreements; • Known pre-existing conditions excluded.

42. Customized Products • Coverage can apply to both first and third party risks; • Coverage scope limited to insured location(s); • Clean up costs included; • Third party risks associated with non- owned disposal sites can be included if the sites are specifically identified.

43. Customized Products Markets • AIG, Chubb, Kemper, others • Policy terms range from 1-10 years depending upon the risk; • One time premium for the term; • Limit of insurance aggregated over the term.

44. Questions?